Interactive | Mining assets for sale around the world

BHP Billiton
and
Rio Tinto
shareholders have urged the global miners to find different approaches to sell up to a ­combined $US35 billion in assets by ­considering alternative methods and a wider range of operations to offload.

A lower iron ore price, cost ­pressures, the need to retain quality credit ratings and mounting pressure from shareholders to return cash has led to a significant push by the two ­biggest diversified miners in the world to reduce capital spending, costs and to sell ‘non-core’ assets.

Deutsche Bank has previously ­forecasted BHP could raise up to $US25 billion by selling non-core assets, while Rio could raise up to $US10 billion.

Rio was forced to announce $US14 billion in write-downs associated with its aluminium business and Mozambique coal operations in ­January 2013. It cost Rio chief executive
Tom Albanese
his job.

BHP shares have finished less than 1 per cent down at $31.37 a share over a one year period while Rio closed 7 per cent down over the same time period. The S&P/ASX200 closed 17 per cent higher over the past 12 months.

BT Investment Management ­portfolio manager Brenton Saunders called on Rio and BHP to be “quite aggressive" in their restructuring efforts.

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“Arguably Rio should be thinking a bit more broadly about some of its bad businesses as opposed to some of its small and non-core businesses, which it’s not," he said.

“There are a couple of holy cows that should really be looked at, particularly for Rio. The obvious one is [aluminium business] Alcan. That’s the one that really is a big millstone for them and probably the biggest source of bad returns across their portfolio."

Perennial Growth Management ­senior equity analyst Paul Phillips said both companies should spin out some of the assets identified as non-core and offer existing shareholders and the market to value the various assets.

“Instead of raising cash, I think they should look to spin out the assets and let shareholders decide what the value of those assets is. I would prefer them to consider an in-specie distribution," he said.

“In the current market, if they are listed in the equity market you are ­actually going to get a value for them and people can see there’s a ­normalisation process that is going to go on with some of these assets at some point in the future, if they’re willing to pay for that."

Greater shareholder activism comes after the world’s largest mining ­investor – BlackRock – pushed for BHP and Rio to accept lower prices for assets up for sale, insisting a full price was not paramount to improve shareholder returns.

“You might end up selling something that is worth $1 for 90¢ but if your shares are trading at only 70¢ on the dollar, then you can use proceeds you are ­getting at 90¢ on the dollar to buy back your own shares. That’s much more value creative," he said in April this year.

However, many of the biggest ­mining investors have downplayed the need to sell assets at all costs given uncertainty in equity markets and ­difficulty attracting finance.

Mr Saunders said while the ­divestment program was a great ­opportunity to clean out underperforming or strategically less important businesses, it was important for the market to assess each asset sale or retention with poor market conditions in mind.

“When you don’t have to sell things, I don’t think you should be. A lot of them are sort of kowtowing to investor ­sentiment. Ironically, some of the work done by some of the analysts will ­suggest that some of the things being targeted for sale are some of their ­highest return business, albeit they are small," he said.

“They are selling them because they don’t look that good or it’s a bad allocation of management time, but these are actually really good businesses. You should never be selling businesses like that at the bottom of the cycle."

Mr Walsh previously said its divestment program was “not market day at the bazaar" just before Rio announced it was retaining its diamond business.

Uncertain market conditions are likely to dictate how assets are sold and who can afford to buy them, according to Pengana Global Resources Fund portfolio manager Tim Schroeders.

“Ultimately I suspect that both companies are going to have to make the hard decision to dispose of some assets via in-specie distribution thereby avoiding shareholder backlash about selling assets too cheaply, but leaving the ultimate decision around value to shareholders in those instances," Mr Schroeders said.

“We are going to see players like sovereign wealth funds, like Chinese state owned companies and increasingly; private equity."